"Everyone has wants, needs and desires when it comes to spending money," says Pete D'Arruda, financial radio show host, author and president of Capital Financial Advisory Group in Cary, N.C. "Make sure you have seven months' worth of emergency income available for the needs."
Kevin Gallegos, vice president of Phoenix operations for Freedom Debt Relief, says to focus on having enough to cover expenses when setting your savings goal, not on replacing your entire income.
"Remember, in an emergency, we don't fund vacations, fancy new clothes, dining out or other luxuries," he says.
While you may aim higher eventually, Smith recommends making small goals at first, such as saving $1,000 and working your way up to a reserve to cover several months' worth of expenses.
Your rainy day emergency fund should be easily accessible, but not so easily accessible that you'll be tempted to make withdrawals for everyday spending.
"I like using an account away from my normal checking account to build a psychological wall between my spending habits and my emergency fund," says Ray Lucia, a Certified Financial Planner and nationally syndicated radio host. "Credit unions work well because they normally allow you to start with smaller amounts of money."
Online banks also are good locations for your emergency savings account because you can't just walk into the bank and withdraw your cash.
Danielle Marquis, adjunct professor of personal finance at Red Rocks Community College in Lakewood, Colo., recommends keeping emergency funds in a combination of locations and/or saving accounts, including an online savings account, in savings bonds and as cash in a lockbox at home.
If you can't stomach keeping a significant amount of money in a standard savings account with a low interest rate, consider a money market account that allows withdrawals only at certain minimum levels, or purchase short-term certificates of deposit with three- or six-month terms on a regular basis. You'll earn some interest and be required to constantly reinvest.
Establish a monthly savings goal and make it part of your regular budget. Marquis recommends setting up an automatic monthly transfer, just as you would with the electric bill or fitness club membership, to ensure the money is saved each month.
"The forced savings should feel like a bill pay transaction that is done on the same day of every month," Smith says.
Paying yourself first through a direct deposit from your paycheck into your emergency fund account will help you build your fund steadily. But make sure you've created a balanced budget so you know you have enough money to save, says financial coach Matt Wegner of Matt Wegner Coaching in Sheboygan, Wis.
"Too many people direct deposit money in their savings accounts, only to turn around and pull the money back out to pay bills," he says. "A solid monthly spending plan can help avoid this situation."
"An emergency fund is for the unexpected," says Carrie Coghill, a Barron's Top 100 financial adviser and the director of consumer education for FreeScore.com. "For example, appliances that stop working, getting laid off from a job, a long illness or an accident. You use an emergency fund for any expense you cannot foresee."
One of the most common problems people have with emergency funds is forgetting to plan for one-time expenses each year, Coghill says.